Yuan slides in rankings as value weakens: SWIFT

AFP and Bloomberg, SHANGHAI

Fri, Mar 28, 2014 - Page 15

Use of the Chinese yuan as a global payments currency retreated last month, transactions organization Society for Worldwide Interbank Financial Telecommunication (SWIFT) said, as the unit fell against the US dollar.

The yuan dropped back to the eighth most-used currency for payments worldwide, SWIFT said, just behind the Swiss franc traditionally seen as a safe haven for investors.

In January, it had risen above the Swiss unit to take seventh place.

On a value basis, global payments in yuan plunged 8.5 percent last month from January, SWIFT said, but gave no amount.

SWIFT attributed the fall in ranking and transaction value to the long Lunar New Year holiday and the comparatively shorter month of February.

However, the yuan weakened for much of last month, at one point closing at an eight-month low.

Analysts believe the depreciation is a deliberate move by the People’s Bank of China to target speculative funds betting on continued rises.

The slide last month also came before the central bank announced earlier this month a long-awaited reform, doubling the trading band for the tightly-controlled currency against the US dollar.

The yuan can now move up or down 2 percent daily — double the previous 1 percent — on either side of a mid-point set under the guidance of the central bank, which says it polls market makers.

So far this year the yuan has fallen about 2.6 percent against the US dollar, erasing nearly all the gains from last year, when it rose more than 3 percent.

“The pressures are now on for the corporate default rate to be moving higher,” said Viktor Hjort, the Hong Kong-based head of Asia fixed-income research at the US lender. “Any economy that generates defaults usually needs three things, leveraged balance sheets, sluggish growth and tighter financial conditions. China ticks all three boxes.”

Chinese issuers pay an average 6.22 percent for US dollar-denominated securities, after yields touched 6.39 percent on March 20, the highest since September, JPMorgan Chase & Co indices show.

Top-rated companies pay an average 6.05 percent for 10-year notes onshore, the most in a month and poised for the biggest monthly increase since November, according to Chinabond indexes.

“Access to credit has become increasingly tight,” Hjort said in an interview on Wednesday. “That’s what’s starting to create tensions in terms of credit risk in China, creating the basis to expect default rates will go up, and is the main reason why one needs to be cautious.”

The seven-day repurchase rate, a gauge of funding availability in the interbank market, climbed 96 basis points, the most since Jan. 20, to 4.84 percent yesterday, National Interbank Funding Center data show. The measure is rising for an 11th straight day, the longest streak in seven years.